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Polypore International (NYSE:PPO)

Q2 2013 Earnings Call

August 07, 2013 4:45 pm ET

Executives

Kathy Brosco

Lynn K. Amos - Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer

Robert B. Toth - Chairman of The Board, Chief Executive Officer, President and Chairman of Executive Committee

Analysts

Brian Drab - William Blair & Company L.L.C., Research Division

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Kevin R. Maczka - BB&T Capital Markets, Research Division

Avinash Kant - D.A. Davidson & Co., Research Division

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Polypore International Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to your host today, Kathy Brosco. Please begin.

Kathy Brosco

Thanks, Sean, and welcome, everyone, to our call to discuss our second quarter 2013 financial results. Joining me today on the call are Bob Toth, our President and Chief Executive Officer; Lynn Amos, our Chief Financial Officer; Rob Whitsett, our Vice President of Finance; and Paul Clegg, Director of Investor Relations.

Our earnings release and a presentation containing supplemental financial information are both available on our website at polypore.net in the Investor Relations section, and this call is being webcast and a replay will be available, as always, on our website. I'd like to remind you that today's call may contain forward-looking statements under the meaning of federal securities laws. Please review our disclosures regarding forward-looking statements, which are contained in our earnings release and in our quarterly financial supplement. Forward-looking statements are subject to risks and uncertainties that could cause future results to differ materially from those we discussed. Please review our SEC filings for a full discussion of risk factors related to the company's performance. Polypore undertakes no obligation to update or revise any forward-looking statements for any reason. When discussing financial performance, we often use non-GAAP measures such as adjusted EPS and adjusted EBITDA. A reconciliation of these items to U.S. GAAP measures is available in our earnings release and in our presentation material, which can be found on our website in the Investor Relations section.

With that, I'll turn the call over to Lynn to go through the numbers.

Lynn K. Amos

Thanks, Kathy. As we reported this afternoon, our consolidated adjusted EPS for the quarter was $0.40, with Microporous contributing $0.06 of that. Given the planned divestiture of Microporous, which is now accounted for as a discontinued operations, my commentary this afternoon will exclude Microporous unless otherwise noted.

As we reported, results from continuing operations in the second quarter were as follows: sales were $168.9 million; adjusted EPS was $0.34; segment operating income was $33.8 million; and adjusted EBITDA was $47.1 million.

CapEx was $7.4 million in the quarter, with full year CapEx now expected to be approximately $40 million.

Regarding segment results, beginning with the Transportation and Industrial segment. Sales in the quarter were 9% above the same period last year and segment operating income margin was 21% of sales, compared with 23% in the prior year period.

Sales were up on volume growth in Asia and the Americas, while margin was affected by higher exports from our U.S. and European manufacturing facilities to Asia, as well as the effect of higher costs in Asia associated with foreign exchange.

We've grown rapidly in Asia over the past 5 years.

And with that, we've had to export into that region, which had -- which has impacted our margin. Additionally, we've had some foreign exchange move against us on the cost side. As we continue to expand in Asia and as we manufacture more product globally -- more product locally, we'll see a favorable impact on our margin over time.

Moving on to the Electronics and EDV segment. Sales in the quarter were $42.2 million. The improvement we experienced in March was sustained through the second quarter, with the increase over first quarter being driven by sales in the EDV applications. Sales volume largely dropped operating income margin. So with that, operating income margin was also up sequentially.

In the Separations Media segment, sales were similar to last year. Growth in health care was offset by a decline in filtration. The decline was primarily associated with the impact of soft European -- with the impact of a soft European economy on certain end-use filtration applications. Segment operating income margin was 30% of sales, compared with 28% a year ago, primarily due to production timing and product mix.

Recall that our upcoming third quarter is typically our lowest quarter from an operating income margin perspective, due to seasonal shutdowns and European holidays. This year, we planned for our preventative maintenance shutdowns to be large -- to be longer than last year. Therefore, we expect operating income margin for the third quarter to be below last year's level of 24%.

The annual operating income margin for Separations Media has been in the high-20% range over the past several years, and we expect similar performance for the full year 2013. Also for the quarter, I'd like to highlight that we acquired approximately 2 million shares, delivering on our commitment to use our excess cash to drive shareholder value.

At this point, I'll turn the call over to Bob.

Robert B. Toth

Thanks, Lynn. Two of our segments, Transportation and Industrial, and Separations Media, which together represents 75% of our company, are delivering solid performance.

In Transportation and Industrial, growth over the last several years has been driven primarily by Asia, the region we've cited as being central to our strategy. Obviously, with the planned divestiture of Microporous, which largely has sales and assets in Europe and the United States, Asia becomes an even larger percentage of our business, and we remain focused on driving growth and margin in that region.

In Separations Media, our health care business remains strong. The factors driving market growth are intact and we have the demonstrated leadership and product technology and functionality.

In filtration, while there's been some recent economic impact, particularly in Europe, we serve a variety of applications with unique performance and functionality, and we see ongoing development taking place and driving future growth.

In Electronics and EDVs, first, in consumer electronics. Regaining our market position remains a challenge and a priority, and we're focused on finding ways to resolve that. Getting into new applications and those that are selling well is a gradual process. We have a lot of activity as it relates to consumer electronics. We're working closely with customers and we have the products and technology to be successful.

In EDVs, we're pleased with the sequential growth in the second quarter. In an industry of this magnitude, quarter-to-quarter variability will occur, especially in the early period of initial market penetration. We see continued development and planned introductions of new vehicles that will drive longer-term growth. And you don't have to look too hard or too far to see the number of vehicles being introduced now and over the next couple of years.

Given that, we remain confident in the direction of EDV applications, as well as in the large format applications associated with energy storage systems. Our substantial capacity investments, combined with the performance of our separators and commercial applications, provide us with high-quality, demonstrated capacity available to serve the market as it develops. That is a distinct competitive advantage.

In summary, our Transportation and Industrial and Separations Media segments, which together represent the majority of our company, continue to perform well, with high recurring revenue and good growth prospects. In EDVs, we're at the front end of a step change growth opportunity, and we're well prepared and well positioned to respond to demand as the market grows. We have a strong capital structure with substantial cash generation capability, and we're utilizing our free cash flow to drive shareholder value and we'll continue to focus on ways to deliver value going forward.

Sean, at this point, let's open up the call for questions, please.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Brian Drab of William Blair.

Brian Drab - William Blair & Company L.L.C., Research Division

The first question, I guess, will be, did you see momentum building throughout the quarter in EDV? Or can you talk at all about how it trended month-to-month?

Robert B. Toth

Yes, we're not going to get into that, Brian, because of the reasons we've talked about in the past, which are order patterns month-to-month when timing -- the timing of when orders land and those kind of things can make -- changes occur month-to-month that just aren't meaningful. I think the key takeaway is what we said and we alluded to last quarter, which was we saw the order pattern improve in March and that was sustained through the quarter.

Brian Drab - William Blair & Company L.L.C., Research Division

Okay. And I want ask this, but I have a feeling that you're not going to be able to give a as comprehensive an answer as I'd like. But in the last year, you've begun to speak more openly about some of the direct customers that you have in EDV and some of the vehicles, the Volt and LEAF and LG Chem. Can you -- with all these new vehicles coming to market, can you point to any other vehicles that you would expect to start to be more meaningful to your revenue?

Robert B. Toth

Well, we can't talk about customers and we can't talk about particular vehicles. Some of those things got out to the -- in the public domain not from us, right? So we really can't go beyond what's been said out there by other people. But I think the -- but I think you bring up a good point, which is we're very pleased with the number of new models being developed and being introduced currently, and we're also very pleased with the broadening of our customer base. As I think I've said the last couple of quarters, we see people where we didn't have the opportunity to service them because of capacity in first-generation batteries and things like that coming back to us and very interested in working going forward and very active in development going forward. And while we can't comment on specific cars at all, I'd encourage you to just kind of look around at what's on the news and in the papers and in the magazines. You've got Fiat's out. You've got Volvos out. You've Audis coming out. You've got Volkswagens, BMW hybrid, the i3, the i8. You've got the Porsche Panamera hybrid -- plug-in hybrid that's been announced. You've got the Porsche Cayenne plug-in hybrid that's been announced. And you've got the future Mercedes plug-in hybrid that's been announced. So we're just delighted to see the bigger picture of more cars, more availabilities, more offerings in terms of optionality or options and pricing for consumers to get to a broader customer base out in the marketplace. So all that is trending very positively and the diversity of our customer base along with that is very good.

Brian Drab - William Blair & Company L.L.C., Research Division

Okay. I'll just ask one more on the consumer electronics business. Maybe 2 quick questions on consumer electronics. First of all, it sounds like I can infer from your comments, the specific comment that the growth in Electronics and EDV sequentially came from EDV, that the consumer electronics piece of that business was flat sequentially. First of all, is that a fair inference?

Robert B. Toth

Yes, well, relatively. I mean, what we said was virtually all the growth came from EDV quarter-to-quarter, sequentially.

Brian Drab - William Blair & Company L.L.C., Research Division

I could still conclude that you were down in consumer electronics based on that information? Can you say whether it's down or flat?

Robert B. Toth

We're not going to get to that. [indiscernible] I think the message here -- Yes, I think -- yes, are you talking about year-on-year?

Brian Drab - William Blair & Company L.L.C., Research Division

No, sequentially from the first quarter.

Robert B. Toth

I think you're getting a little too granular there. What we said was the quarter-to-quarter sequential growth was all in EDV.

Brian Drab - William Blair & Company L.L.C., Research Division

Quarter-to-quarter sequential growth was all in EDV. And what I'm saying is that, that's still -- it leaves it open to the possibility that CE was down sequentially.

Robert B. Toth

Yes, we didn't say that, but you could kind of...

Lynn K. Amos

Look, I mean, let's just talk about consumer electronics for a second, right? We're not satisfied with where we are in that business. And regaining a market share in that business -- our market position in that business, it remains a challenge and a priority for us. But then getting into new applications and particularly those that are selling well right now, that's a gradual process and we got a lot of activity going on in consumer electronics, and we're working closely with customers and we believe we have the products and technology to be successful. So -- but let's not confuse it, right? At the end of the day, EDV is going to be the primary driver of our growth and operating leverage and that's what we experienced from Q1 to Q2, and that's what we built our capacity for.

Brian Drab - William Blair & Company L.L.C., Research Division

Yes. That's fair enough. And understand, I'm not trying to say that, here, you guys aren't doing what everything that you can on the consumer electronics business. It's just -- it's more a question about the headwind that's pretty well known now in that business that you've had all these competitors that have built out a lot of capacity for -- makes separator material for the electric drive vehicle market and you guys have won most of that business, and now there's a lot of capacity seeking a home in consumer electronics and there's pricing pressure there. But -- so I'm wondering if among other things, if you're seeing pricing pressure increase in that consumer electronics side of the market.

Robert B. Toth

Well, as we've said, right, there's always -- price is always -- people often frame it as binary, right? Something's price competitive or not. When in fact, it's always a continuum. And when the market's not as robust and there's excess capacity, there's more pressure. And when the market's robust and there's less capacity, there's less pressure. And so I think I've said for a couple quarters now, there's probably more pressure relative to that dynamic. But fact of the matter is we disclosed price and we've been pretty transparent about it and here again, we really don't have anything to talk about in terms of price, right? It's pretty flat. So people can speculate and hypothesize on price going forward and that's fair. They can do that if they wanted. But fact of the matter is our price, as we said, was flat.

Operator

Our next question comes from Jeff Osborne of Stifel.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Just a couple of questions. Maybe just following up on Brian's questions. I mean, if you're unsatisfied with consumer, what -- and you're trying to turn that ship around. You got a new head of Energy Storage, what's the secret with being a little bit more transparent? I just don't understand if you want investors to buy into a turnaround story on consumer electronics being a growth engine for the company over the next couple of years. I don't understand why you wouldn't be more transparent about that. I completely understand not divulging customer information or particular products that you're in, but that's just a bit perplexing to me. But anyway, if you don't want to answer that question to Brian...

Robert B. Toth

I'm kind of surprised at that, to be honest with you. We're remarkably transparent probably, exponentially so, relative to anyone else in the world. We disclose what happens in price. We disclose a split directionally between consumer electronics and EDVs. And it's not like there's 286,000 customers in this business, right? So at the end of the day, what we already disclosed gets used against us out in the marketplace. And all we're saying is look, we didn't build the capacity that we built betting on consumer electronics. We built that capacity because of our advantages and because of the magnitude of the opportunity in electric drive vehicles, ESS. We're not anything about consumer electronics carrying the day going forward. We've always said, "Look, we'll earn our way back." We're earning our way back at a time period where the market doesn't have favorable dynamics to do that in a quick timeline. We've seen the opposite as well, where people were begging us and sticking take-or-pay contracts in front of us, not all that long ago. So the tide will turn in consumer electronics. We're earning business there. We've got proprietary technology around ceramic coatings, which are becoming more popular in consumer electronics. But at the end of the day, the devices have to sell and we can't make that happen.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Right. I heard you on the flat pricing, what you'd claimed you disclosed, the mix -- what was the mix this quarter then?

Robert B. Toth

Well, we said last quarter, historically, we've talked about it being directionally about 50/50, give or take, because every quarter, you've got some slight order timing and things like that. But directionally, it was about 50/50 and we said all the growth this quarter was in EDV, so you don't have to -- you don't have to have too much math to figure that one out, right? We're are going to caution everyone from trying to take one quarter and purely extrapolate.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

I understand, because I see Taiwanese battery industry show 18% sequential declines in revenue, I had a bit of concern that, that might impact you. But maybe shifting gears on the Microporous side, what was the revenue in the quarter for that division? I might have missed that in the -- all of the adjustments.

Robert B. Toth

What was Microporous? Well, we've culled Microporous out of all of our numbers. So all of the numbers we report don't include it.

Lynn K. Amos

That will be disclosed in our 10-Q, which we are filing tomorrow.

Robert B. Toth

Yes, we don't have the detail in there.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And can you just give us an update on the divestiture there and any potential timing in your negotiations with Wells Fargo?

Robert B. Toth

Well, all we're saying at this point in time is that we plan to have it complete by the end of the year. And we'll be very prompt when we have something to discuss.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Okay. And the last question I have is just as we approach the model year changeover for many EDV platforms, in particular your 2 high-volume vehicle platforms, how do we think about any potential inventory adjustments or changes that your customers may have in terms of seasonality for the -- as it relates to Polypore and their buying patterns. Is that a conversation that you had with their 2 main battery suppliers?

Robert B. Toth

Well, I think you kind of have to take a step back on that, Jeff. People want to kind of have a precise -- when a car -- and I'm not saying you're asking this, but we get this question a lot, right? When a car sells, how much prior to that do you sell separator? And the answer is it could be about anything. Now there's some inherent complexity in the supply chain. In some cases, we ship overseas. In some cases, they ship overseas. In some cases, there's a time lag involved in the process they use to produce cells and packs. So -- but the takeaway is that while the correlation isn't precise or perfect because of that complexity of the supply chain, as more and more of these vehicles come out and as more and more sales get reported, you'll see that correlation tighten up between production and sales and kind of our sales. But there's always going to be some inherent lag or disconnect between that in a quarter. If a car sells today, we may have sold 2 months ago, 3 months ago or 4 months ago for it, right? And that's just going to be a function of the customer, their production, their production schedules, when they ship things and those kind of things. But directionally, to your question, you're going to see a tighter correlation there over time.

Operator

Our next question comes from Richard Eastman of Robert W. Baird.

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Say, just a couple of things. On the -- just continuing for a second on the lithium business. Bob, are there any meaningful ESS sales in the quarter? And would you expect any for the balance of the year into that application?

Robert B. Toth

Well, ESS is occurring. It's project-related. It's going to be very large, but it's hard to measure today, because for us, it's selling into some of the same large format cells that go into EDV, right? So it's very hard to be precise on that. Even if I wanted to give you a precise answer, it'd be very hard to do. But ESS is happening. I mean, there are more and more projects happening around the world. I mean, to date though, I wouldn't say that you see any huge slug of volume in any one quarter, right? To date, there's been kind of reasonable-sized projects, but they are proliferating.

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

And that will be captured in the EDV piece?

Robert B. Toth

Yes, largely. I think it'll be too hard to tell in most cases. I mean, over time, maybe there'll be a way to tell. But today, that's too hard to tell because they're many of the same-sized cells, right? So...

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

And Bob, if I were to ask you, when you look at your EDV sales in the quarter on the lithium side, could you venture a guess as to what portion of sales of that material are U.S. versus rest of world? And I totally get the fact that Nissan is, assuming they were a customer, we all know that, but -- so you sell to them, but I'm just curious if your mix of revenue looks a little -- looks similar to the population or mix of EVs globally?

Robert B. Toth

I think -- I mean, we could -- we know where we ship it. But the question is what cars does it go into. In some cases, that's in the region. But in many cases, it's not in the region. So we would have a slight view of that, but it would not be a precise view of that. But yes, to your question, do we sell in cars all over the world? Absolutely. But it would be very hard to be accurate with that information from our view.

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then just one question on the lead-acid side of the business. Can you give us a sense now of what percentage of your sales are essentially being exported to Asia or kind of "conversely manufactured" in Asia, primarily in China? In other words, what piece -- there was a comment about, as we produce more in country, our margins should work higher. But what is that opportunity?

Robert B. Toth

Yes. Well, I'll give you a directional answer. We're really not going to be precise there and it changes quarter-to-quarter. This quarter was pretty high for a couple of reasons and I can kind of walk through that in some detail. First of all, if you think about the presence we have in Asia, it's the presence we have in Asia, right? So as you separate out Europe and U.S. Microporous assets, Asia becomes a higher percentage of our sales. And in this particular case, as we've said, Europe wasn't very strong. So more sales went into Asia proportionally, from either the United States or Europe. And then we also had some impact on the COG side in Asia, this particular quarter, from some FX impact. So we had a kind of a couple of things going on impacting margin, if that's what you're ultimately going to ask about.

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

Yes. I'm just trying to get a sense of, now with Microporous and that divestiture, presumably that sections off some of your capacity for Europe. So presumably, you would transfer that capacity in country in Asia. Is that fair?

Robert B. Toth

I think you're -- I don't think we're prepared to talk about that yet. Our plant -- our biggest plant in Europe is in Sélestat in France, and that plant is still ours. So we export primarily from Owensboro and Sélestat to Asia.

Lynn K. Amos

So we have 2 in the U.S., Owensboro and -- Owensboro, Kentucky and Corydon in U.S., and we have one in Sélestat, France. And those are the 3 big plants in Europe and the U.S. And most of the exports go from Owensboro, Kentucky and from Sélestat, France to Asia. Those -- over time, as we said last time, as we get capacity on the ground in Asia, we'll want to keep that capacity full. But largely, at the rate we're growing in Asia, that's not really reducing the amount of exports. It's just -- it will reduce the proportion of total sales that are exported.

Robert B. Toth

The margin will work it's -- It's not going to snap back, right? It will work its way back. Now, you'll have normal quarter-to-quarter variation, like we did this quarter. But over time, you'd expect margin to improve as we produce and sell more there.

Richard C. Eastman - Robert W. Baird & Co. Incorporated, Research Division

And Bob, you referenced, just to clarify this -- you reference was in this particular quarter, you had a higher percentage produced locally or you had a higher percentage exported there? What was...

Robert B. Toth

Exported. Our assets aren't yet -- all the investments we've made there aren't yet running optimally, right? So as we gear those up, we'll be producing more. But this quarter, we exported a little more.

Operator

Our next question comes from Kevin Maczka with BB&T Capital Markets.

Kevin R. Maczka - BB&T Capital Markets, Research Division

Can I just piggyback off that last question. Maybe I missed it, but the Asia capacity that you're adding, I guess, where are we in lead-acid on Asia capacity? And when -- what's the timeframe to bring that online such that we might realize some of this margin improvement you were just talking about?

Robert B. Toth

Well, we had -- we had added, recall, the line with the Camel venture in Xiangyang, China, right? And that's up and running. And then we said that second line that's going in now would be up and running around year end, I think, is what we talked about. And then we added a line in Prachinburi, which is what I referred yet as not yet running optimally.

Lynn K. Amos

And that's a pretty small line.

Robert B. Toth

Pretty small line, but it will give us some additional capacity there.

Lynn K. Amos

So -- but those 3 lines, all in, from when we started putting them in were -- maybe give us order of magnitude $50 million of revenue per year and so we're partially up that curve.

Robert B. Toth

And then we've talked about, but haven't decided exactly where the next expansion will go, but that's what we've talked about, kind of earmarking capital for thinking more about in early 2014.

Kevin R. Maczka - BB&T Capital Markets, Research Division

Got it. Bob, maybe shifting back to lithium. That's always been your highest margin business. We see the strong leverage this quarter sequentially as those revenues came back. I'm just wondering in the last couple of quarters, as those revenues kind of bottomed out, I think you were kind of pushed to the point of trying to take some cost and even some people out of that business. And now with that revenue coming back up, I'm just wondering is this a type of leverage or type of incremental that we ought to expect should those revenues continue to grow? Or do we start to layer some of that cost back in and maybe the leverage was even higher than normal coming up off the bottom here in Q2?

Robert B. Toth

I think it's directionally accurate. I mean, I think we manage some cost and some people and as a result, some capacity. But it's -- as we've said, we've used different terms. But that's not the leverage item in this business, right? So at end of the day, I think you can look at the quarter-to-quarter change as being pretty accurate directionally.

Kevin R. Maczka - BB&T Capital Markets, Research Division

Okay. And then just finally for me, Bob. I know you never want to like us to extrapolate too much on any given quarter, but do you feel like in lithium this quarter and EDV, you are shipping to end demand? Or should we maybe smooth out the Q1 where you did have the moment of silence again and the stronger Q2 and kind of think that some sort of blend there is maybe more in line with true end demand right now?

Robert B. Toth

Well, to kind of go back to the earlier question of -- we're shipping in advance of when the car sales occur, right? The question is, what's kind of the bid and asked there and the bid and asked in advance is probably no less than 6 or 8 weeks to as much as 16 weeks, maybe even a hair more. And that even isn't precise, right? That probably gets you into the bell-shaped curve. And so the stuff we're -- that we sold in the second quarter isn't necessarily in cars that sold in the second quarter.

Operator

Our next question comes from Avinash Kant with D.A. Davidson & Co.

Avinash Kant - D.A. Davidson & Co., Research Division

A few questions. So could you talk a little bit about, you said the Q3 shutdown this time around, that you, of course, have every year, is going to be a bit longer than previous years? Why is that? And does that imply margins this third quarter could be actually weaker than the previous year's third quarter?

Robert B. Toth

Well, I think Lynn was explicit that they would be below last year's 24%. It's just a function of when you plan shutdowns.

Lynn K. Amos

Yes, this is Separations Media business.

Robert B. Toth

Again, Separations Media last year, third quarter operating income margin, from memory, I believe, was 24%. We said it would be below that purely because we planned a little longer shutdown period this quarter. Nothing unusual, just the way it was planned. And you see in our margins in the first half, they were a little stronger and we cited production timing, I believe, in a couple of cases.

Lynn K. Amos

Yes, I think actually on the last call last quarter, I mentioned that for about 3 years running, our operating income margin in that business has been around 27%, 28%. And we said last quarter, and we reiterated this quarter that, that's still what we'd kind of expect for this year.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. And in your prepared remarks, you had talked about -- in the forecast, you talked about seasonal impact in Q3. Do you mean revenue-wise or earnings-wise or both?

Robert B. Toth

Well, what we've always said is, we've got a lot of European operations, a lot of European customers. We plan our maintenance, preventative maintenance shutdowns and things like that around the European holidays, as you'd expect. And so that's the seasonality we talk about, which primarily impacts margin. Some impact on sales. But obviously, we're a very global business so it's a lot more modest impact on sales. Yes, nothing unusual from what we have seen and kind of talked about every year, right? There's nothing unusual going on this year other than Lynn called out that we'd planned for a little longer shutdown on a relative basis than last year.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. And you talked about winning market share in the electronic side. Could you talk a little bit about how do you plan to do that? Do you think you'll be winning it based on just the quality or the pricing? What are you trying there?

Robert B. Toth

Well, I mean, what we said was it's taking us longer than we anticipated, right? And for a lot of reasons, the tide's down. There's some excess capacity available. There's not as much device churn when the economy is a little softer like it's been. And just a relatively few pretty identifiable devices are selling well. And those happen to be designed at a time when we were allocating products, so we kind of missed those. So what we need is to have more churn in consumer electronics. We don't have any issue with the products or the technology, and we're working closely with customers, but it's been a more gradual process than we would have liked. And the takeaway was we're not satisfied, but the message also is we're staying focused on driving that.

Avinash Kant - D.A. Davidson & Co., Research Division

Okay. And the final question, of course, kind of related to pure qualitative comments about the EDV business and the electronics business last quarter versus this quarter, so clearly the math says you're EDV business was up 146% sequentially. How wrong am I in assuming that?

Robert B. Toth

Well look, I'll say this again, and it's all kidding aside, we've got to be careful. The more granular you get in some of these things, the more wrong you are in extrapolation, right? It is like trying to decide today, based on the weather in Charlotte, what's happening in the global warming. You've got to take a bigger picture. What we said historically is, including last quarter, that we said there wasn't anything miraculously different, consumer electronics and EDVs was about 50/50. And what we said this quarter was the growth that occurred from first quarter to this quarter was all EDVs, right? So trying to get to a precise percentage, I think, would -- you could, if you wanted, but I'm not sure that, that's going to be very helpful to you.

Lynn K. Amos

And then we highlighted the last quarter, there were some things that were a bit unusual in the demand.

Avinash Kant - D.A. Davidson & Co., Research Division

EDV side, you mean?

Lynn K. Amos

Yes.

Operator

Our next question comes from Brian Drab of William Blair.

Brian Drab - William Blair & Company L.L.C., Research Division

I calculated 146% as well, but I'll just settle for 120% to 150%.

Robert B. Toth

To what decimal, Brian, if you're going to be precise?

Brian Drab - William Blair & Company L.L.C., Research Division

I'll just say 120% to 150%. 146.3%, I guess. All right, so Bob, I wanted to ask you, going back to about a year, when we started to understand a little bit more clearly how significant the exposure was to EDV, at some, on some conference calls, I believe that you said something to the effect of, it's clear that we placed a big bet on EDV, it's too early to say whether that was the right bet. Now after seeing the second quarter results and what you're seeing in terms of momentum in that business, can you say any -- can you make a conclusion regarding whether that was the right bet today.

Robert B. Toth

Well, I think actually, that was more in the context of -- and I'm sure you'll look it up and correct me if I'm wrong, but I'm sure -- I think that was more in the context of kind of long term and short term, right? If you look long term and you go, "Is EDV happening?" You'd have to be making stuff up to say it isn't, right? All you have to do is look around the world and look at the vehicles that are coming out, look at the development that's taking place, look at the regulations that are being put in place around CO2 emissions and mileage standards, and it's happening. Now in the short term, then you say, "Well, how's next quarter look, Bob?" Well, you know what, we don't control car sales and that's ultimately going to back up to production and that's ultimately going to back up to how many battery packs people make and that's ultimately going to back up to cell production. So we don't control the short term or the driver, but it's happening around the world. And I think I also said, maybe last quarter or maybe several quarters, that to me, it's not anymore a question of if. It's just when and the slope of the growth, right, because there are a lot of new vehicles coming out. And you're seeing new pricing offerings by the day and lease deals by the day and they're starting to figure out what consumer segments will want these things and why and how to position it even in their marketing and advertising. There's been speculation that the LEAF demand is greater than what the dealers have. And so you're seeing all of that starting to take place, which is a clear sign to me that it's -- and then you go in to look at the cars that are being designed and rolled out, right? And I don't think many of these car companies like Porsche and Mercedes and BMW and others kind of joke around. So they're clearly moving it through their product line. But in the short term, that's what's tough to gauge and that's the variability we talk about.

Brian Drab - William Blair & Company L.L.C., Research Division

All right. Okay. And then can you give us any idea as to whether the second quarter for the lithium segment and EDV specifically benefited from the startup of some plants around the world? The U.K. plant you talked about, is that plant ramping up, or plant coming online in Holland, Michigan?

Robert B. Toth

Well, of course, I mean, there was some impact from that. We talked about first quarter couple of plants ramping up and those happened. Primarily the plant in Tennessee and the plant in the U.K. we talked about pretty explicitly towards the end of the year and that moved into first quarter and ramped up through first quarter into second quarter.

Lynn K. Amos

And we talked about a positive movement that we saw in March. All that links together.

Brian Drab - William Blair & Company L.L.C., Research Division

But what's your sense, though, for the third quarter, fourth quarter? Momentum continues and you're up sequentially or not?

Robert B. Toth

It depends on how many Volts you buy, Brian, or lease or...

Brian Drab - William Blair & Company L.L.C., Research Division

I'd lease it, yes.

Robert B. Toth

Or other hybrids, right? I mean, that's what's going to drive it ultimately. And all kidding aside, I don't know. I mean, somebody was saying they totally discounted some car company projections and they couldn't be accurate and then they asked me what I thought. Well, I don't know better than them how cars are going to sell back in the back half of the year and that's ultimately what's going to drive it. I mean, the good news is, again, the trends are all remarkably positive. You've got more selection at more price points at a broader product offering, kind of by the day, happening around the world and that's all great news.

Brian Drab - William Blair & Company L.L.C., Research Division

Yes. And one more. Given the momentum that you're seeing in the market and the battery manufacturers are seeing that as well, and those businesses are growing, do you see any diversification by the battery manufacturers of their separator supply base?

Robert B. Toth

Well, first of all, I've always said, look, you can't make a battery without a separator, right? So you're always going to be interested in security of supply, and that's one distinct advantage we have. We've got the capacity. We've built it. We're not going to go in and say, "Well, if you do this or that, we might build you the capacity." We've built it and we've built it in multiple sites, right? So we're kind of like 2 suppliers with the best product and the best product quality and demonstrated commercial performance out in the marketplace. So what we are seeing, I can say with certainty, is the people that we couldn't service the first go around, we're seeing clear interest in having those people wanting to work with us and working with us, and of course that's been some of the growth we've talked about, because of the approvals and the sales of some of those people starting up. So we're delighted with the breadth of our customer base. We're delighted with the people that want to work more closely going forward. Having said all that, if I was a battery producer, I'd want to make sure I was doing whatever I could to look at alternatives, because you can't make a battery without this stuff, right? So if, so if anybody called them up and said, "Hey, we're thinking about making something that could work in the lithium battery, would you try it?" The answer would be, "Of course." But having said that, we've got the demonstrated product, the proven performance, which is now actually pretty nice history out in the marketplace.

Lynn K. Amos

And given the automotive requirements, the risk profile that goes along with the decision to try to change raw material components that, that's longer-term in nature than it exists in consumer electronics.

Operator

Our next question comes from JinMing Liu with Ardour Capital.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

First, regarding EDV. And I think other than a couple models on the market, most of those EDV models are losing money. So the car companies are naturally focusing on cut cost. So looking forward, do you see the risk that the EDV manufacturers will demand a lower price from you?

Robert B. Toth

Well, JinMing, nobody's ever going to come to us and then say, "You know, your products are great. I want to pay a greater price." Right? They are always [indiscernible] something, but again, I think we kind of have to go back to the conversation that I had even 2, 3 years ago. You can see how this is all going to play out. First of all, yes, if you spend a lot on developing a new vehicle and then try to amortize the cost out over selling 20,000, you could make the case, in a short period of time, if you amortize those huge costs out of development in that plant, that they're losing money. And so to some extent, the press loves to pick up on the math and go, "Oh, they're losing money on every X, Y or Z they're selling," but they're amortizing $2 billion of cost out over 10,000 vehicles or something crazy, right? So you've got to be a little careful with the math, right? You've got to get behind the numbers and understand it. We're on the front end of this. And scale will be a huge driver for the car companies. It just always is. And, of course, they're going to start in the smaller volume vehicles and they're going to prove out the technology, demonstrate the technology, refine the technology, refine the circuitry, refine the software, figure out how to get improvements in motor connectivity, motor efficiency, linkages to the torque converter, regenerative braking, right? That's going to all go on. That's just engineering. That's going to all go on. And all of that is going to drive cost. Then you've got scale. As they ramp these things up and sell more through the plants, they're going to get scale. And I could go on and on with that. You're going to start designing vehicles from scratch, which are going to have some cost efficiencies, as opposed to just slamming a battery on, kind of our traditional way of thinking of a platform. And then you're going to back up to the battery manufacturer. And in lithium, clearly, the biggest driver of economics to date in consumer electronics and in just lithium battery production, is achieving scale in very big plants. They haven't really had a chance to achieve that yet, right? So that's going to happen. And then you're going to drive basically energy density and then you're going to get, of course, raw materials and opportunities in that. But look, if we gave our product away, it probably wouldn't really impact the cost of the car. And we're third or fourth on the list. So if you ask me, does everybody want something cheaper? Sure, we all want more. I want more. You want more. Everybody wants more, right? So that's, of course, going to be the case. But in reality, this is -- this arguably could be kind of majoring in the minors, if that's the only thing people are focused on, is the cost of the separator or the cost of a particular component. But look at what warranty repair, look at what warranty costs are in automotive. You might want to -- you might save a penny, but talk about being penny-wise and pound-foolish, if you have a particular warranty issue out in the field. And we've got demonstrated performance now.

Lynn K. Amos

The only thing I'd add to that is if you go back to what we've been saying for the last 2 or 3 years, over time, as the EDV market develops scale, this -- the pricing will come down. And we've all -- this market's operated on a volume kind of price rebate tier structure. So if people's volume grow, they will get lower pricing and they'll have the opportunity to obtain pricing targets that they may have. It doesn't mean people will stop asking, but there's a lot that goes into the equation of what you need. And having a dependable, proven supplier who has the capacity to meet your needs on any given day, that's pretty valuable. And not betting on somebody who might be a new entrant, who says, "If you give me your business, I'll give you this price. And oh yeah, I've got to build a plant."

Robert B. Toth

And maybe out of that plant, we'll have consistent product that works.

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Okay. That's very helpful. Switch to Asia. Given the increasing importance of that market, what is your strategy for just hedging the currency risk?

Robert B. Toth

I missed the front end of your question. Given -- switching to what?

JinMing Liu - Ardour Capital Investments, LLC, Research Division

Yes, the importance of the Asian market.

Robert B. Toth

Really, to be honest with you, JinMing, we deal in a ton of currencies. And directionally, they rarely all move one way or the other. This particular quarter, a few currencies moved kind of all against us, but usually that plays out over time. And if it doesn't, we've got the largest presence there and anybody kind of exporting or importing into that region would have the same issues. So we'd have to address that obviously with price over time. But needless to say, they kind of move around. It just happened to be a bit of an anomalous impact early in the year here that primarily hit COGS.

Operator

Our next question comes from Jeff Osborne of Stifel.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

On the product quality that you were speaking of before, Bob, I was wondering if you can just -- some of your -- some of the industries had safety problems, Mitsubishi, Boeing, et cetera. I was just wondering, can you talk about the pace of dialogue with potential customers or existing customers about dry separator versus other types of technologies that may be out there?

Robert B. Toth

Well, I think, Jeff, I can, but we're not going to chase ghosts or shadows, right? We know our products works. We know what doesn't work. We know the inquiries we get. And it's easy for someone to say "Oh, yes, that stuff will work just fine," especially when it's a hand-selected lot that might be tracked, from a quality control perspective, in a notebook and handwritten statistics, right? So that -- we're not going to compete with stuff like that. We know our product works. We've demonstrated it around the world in multiple large format cell applications. We talked about before, to your very point, we've talked about being in military and aerospace applications for years and now we see that legacy of performance and quality carrying over into electric drive vehicles and energy storage systems.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Okay. Just 2 other quick ones. For the last year, you've been talking about the broadening of the revenue stream on the EDV side behind your 2 high content vehicles. I was just wondering if there's any qualitative way of elaborating on that? Are you achieving that goal? Any type of metrics that you can give us comfort? You've mentioned numerous new platforms launching, but is there any way you could detail that so that hopefully, the variability of that revenue stream for you folks will be less exposed to those 2 vehicle platforms?

Robert B. Toth

No, we've always given the metric, Jeff, to indicate how many new vehicles are coming out. Ultimately, it'll be a function of how they sell. And again, that's what we don't control, but we're clearly in a good position as it relates to leadership across the board in automotive or electric drive vehicles. We're not in every single one. We've always said that, because we even couldn't be. But we're kind of delighted with what we see coming out. Ultimately though, they need to sell. That's what will drive the sales for us.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

I recognize that. Is it fair to say that hybrid vehicles as opposed to electric drive vehicles are growing as a percentage of your revenue mix or is that a false statement?

Robert B. Toth

Well, under electric drive vehicles, we talk about that being the whole continuum from micro or mild hybrids to plug-in hybrids to full-battery electric vehicles. And I think you bring up a great point, right. You go, "What's going on in the industry here?" Well, we're clearly seeing, almost universally, all of the car companies starting to work more on micro-hybrids, because the intermittent stop-start is not a very elegant solution. I don't know if you've driven one of those, but we've talked about that all along. It clunks to a stop when you stop and it hesitates when you start and go. And the car companies are figuring out that's why 75%, or whatever it is, 70% of the consumers are turning it off. So they're going toward lithium. We're seeing a lot of development around that, where it's a much more elegant solution for the consumer, or the driver, right? It shuts off as you're decelerating and it starts as you accelerate. So we're seeing a lot of development around that. We're seeing a lot of development around larger-scale hybrids for CO2 emissions, for mileage, for performance and some combination of all those things. We're actually seeing a lot of development around plug-in hybrids, far more than I probably would have anticipated 4 or 5 years ago. So that will be very interesting to see. It seems like consumers are embracing plug-in hybrids because of the functionality aspect of it, it can be an EV, if you drive short distances, but you have the battery or the combustion backup power. So you also have the range. And so that seems to be a nice -- a nice combination that consumers are embracing. And, of course, we've always said that full-battery electric vehicles will be the smallest percentage of the auto industry, as you'd expect, but we're seeing development continue to take place in that regard, as you've seen recently with the Fiat e500, the BMW i3, i8, which have the optional combustion engine backup, and of course, development in Asia, et cetera. But we've always said full-battery electric vehicles will be just inherently, just naturally, a smaller percentage of the market.

Lynn K. Amos

But they'll certainly find their niche and there are certainly people buying them.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

Great. Last question, Lynn. I heard you on the commentary around guidance for the Separations Media business and in some optimistic comments about the second half for the EDV piece. On the lead side, I'm a bit interested in -- one of your customers has filed for bankruptcy and working through that process. I'm curious, should we think about some softness in Q3, Q4 there? Or were they more exposed to the now non-reported Microporous piece?

Robert B. Toth

Well, I'd say and I'd clarify, we didn't say much about EDV. We said that will be a function and correlated to car sales over time, right? We didn't really give any guidance on EDV in the second half. Separations Media is a function of the planned downtime, which we always refer to as seasonality, primarily in Europe. On the customer you're referring to, I mean, they're a long-time customer, we think the -- I'll let Lynn jump in, if he wants, but it's a pretty standard answer. We hope they do really well through this. We think the market needs those batteries. They make a lot of specialty batteries. And...

Lynn K. Amos

I'll just highlight, too, that, to Bob's point, well they are a long-term customers. We wish the best for all those people involved and affiliated. The U.S. assets were the bankrupt piece. The European assets were not bankrupted. European assets, long-standing high-quality market position and they've really been unaffected.

Jeffrey D. Osborne - Stifel, Nicolaus & Co., Inc., Research Division

I understand that, but if I wanted to be conservative with my model, were they affiliated with Microporous or the legacy Polypore business?

Lynn K. Amos

I don't know if we're going to disclose it specifically. But I mean, they've been a customer of ours long before we bought Microporous is the best way I can answer that question.

Operator

At this time, I'm showing no further questions in the queue. I'd like to turn it back over to Bob Toth for closing comments.

Robert B. Toth

Thanks, Sean. Thanks, everyone, for your ongoing interest and support of our company. And we look forward to reporting our second half results to you beginning with the end of third quarter. Thank you very much.

Operator

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the conference. You may now disconnect. Good day.

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